FSN – Genetically Modified Currencies: A Bumper Crop

Our regular Monday meet up with Andy Hoffman:
– John Williams says 2014 is the year for hyperinflation
– Job report made to look ever worse than it really is
– Keeping rates under 3%
– Venezuela, Greece and other stock exchanges hyper inflate
This interview was hosted by Financial Survival Network.

4 Comments

Mike
on January 14, 2014 at 2:10 pm

Andy,

Thanks! Always very informative. One item I have been wondering about. Why is the cost of production for gold so much higher than silver? They are both pulled out of mine production, but the cost of 1oz gold production is so much higher than silver.

Here’s the answer from Steve St. Angelo, the best mining analyst out there…

Andy,

You and your reader’s question is a loaded one indeed. There is so much that I have not even discussed yet on my site that is apart of the answer you are looking for.

It is very hard to wrap one’s brain around the answer, but I will give you the Bazooka Joe Bubble Gum version.

I use the mining cost of gold and silver to give a base price to the metals. The reason why gold cost so much more to produce than silver is due to the factors shown in two of the charts that I have attached.

You will notice that the average yield of the top 5 gold miners in 2012 was 1.22 grams per tonne. However, the top 6 silver miners average yield was 8.1 oz per tonne or a whopping 252 grams per tonne. Thus, the gold miners have to move a great deal more ore to produce an ounce of gold compared to an ounce of silver by the top primary silver miners.

This is all based on the primary gold and silver miners cost.

Gold ore grades over time have fallen more than silver. If we look at this chart on historical Australian metal ore grades we can see how much more gold has fallen compared to silver. Check out the attached chart

Gold is shown by a yellow line and I put a blue line for silver. If you look at the area of the chart from about 1890 to 1910, the average gold ore grade was 25 g/t. However, silver fell precipitously and I estimate the average over that time period was approx. 1,000 g/t. So we basically had a 40 to 1 ratio in the difference in ore grade from Gold to silver.

If we look at the next gold plateau on the chart from 1915-1930, the average gold ore grade was about 12 g/t and silver approximately 250… which gives us a 21 to 1 ratio.

Now, if we compare the top 5 gold miners 1.22 g/t to the top 6 silver miners 252 g/t, we have a whopping 206 to 1 ratio. In the past 3-4 decades, gold ore grades have fallen a great deal more than silver which has made the cost to produce gold much higher.

As for the question on the 60 to 1 cost ratio of gold to silver (which I have brought up several times in articles), this is only one metric. If we had a growing global energy supply for the 20-50 years, than the price of silver would remain in this 60 to 1 ratio.

However, we don’t. I believe global peak oil will hit within the next year or two.

Furthermore, the financial and derivatives markets have destroyed the ability to properly price metals and commodities. The huge $100 trillion plus of Conventional Paper assets, Fiat Currencies and huge U.S. and world Bond market have funneled wealth away from real stores of value and into Paper Energy Liabilities I call ENERGY IOU’s.

When these supposed paper assets implode (and they will), the cost of everything will skyrocket and the public and investors will be forced to move from worthless paper and into real things. This will push the value of silver up much higher than gold in percentage terms due to its affordability and rarity compared to the trillions of paper claims.

There is so much more to add to this answer such as the falling EROI of energy as well as other factors, but at least that should give you a good idea.

steve

Mike
on January 15, 2014 at 12:59 pm

Andy,

Thanks for the response and also for this excellent article. Wow, I had no idea the difference in ore grades. I appreciate what you do! Thank again.

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